UK BATTERIES GLOBAL INFRASTRUCTURE
renewable energy sector . The issue is particularly acute in relation to the more well-known battery suppliers in the market . Forceful developers have made significant progress in the course of the last 12 months and are able to effect a degree of risk transfer comparable to more settled technologies , such as solar PV . In particular , we have seen that EPC contractors are prepared to accept direct agreements , security assignments and other lender requirements in order to secure financing . Some EPC contractors have also assisted with alternative forms of financing , which they view as a “ value add ” to gain market share .
The second consideration is technology risk . Battery storage projects are unique in that a single component comprises almost the entirety of the works , typically the battery constitutes 80 %– 90 % by value . The success of the project is therefore almost entirely dependent upon the reliability of this single piece of equipment . A key mitigant for technology risk is selection of a reputable supplier with a track record of delivering substantive battery storage projects . Although battery storage is a new technology , there are a significant number of reference battery projects across the world primarily in OECD countries which are in successful operation .
The supplier should provide robust equipment warranties , particularly with respect to degradation . Degradation will accelerate where a battery is used in excess of recommended limits . For this reason it is helpful , although generally more expensive , if the supplier is engaged for the long term operation and maintenance of the system . The supplier ’ s interests are broadly aligned with the lenders on this point : both are concerned to sustain optimum performance for the medium to long term , rather than pursuing a more aggressive operating strategy for short term gains . In fact , most suppliers will make this engagement a condition of the various product warranties provided with the battery . This approach follows the example of the early years of wind power .
Finally , the contractual framework should include a comprehensive testing and guarantee regime , covering testing in advance of construction completion and operational-phase guarantees . These guarantees comprise energy retention and availability requirements . Energy retention warranties can be provided as part of the EPC contract , although we know of one major manufacturer who now provides these as part of the long term service contractual arrangements ( presumably to discourage termination of the service contract ).
2021 and beyond Further regulatory and legislative developments are scheduled and expected in the coming months .
The government ’ s December 2020 White Paper confirms that , along with defining electricity storage when parliamentary time allows , the government will , jointly with Ofgem , publish a new Smart Systems Plan in spring 2021 which will include a new framework for monitoring flexibility across electricity markets .
The related Ten Point Plan published by the government in November , did not contain material information relating to energy storage , but did however announce that £ 100 million will be made available to address energy storage and flexibility innovation challenges . This will focus on non-proven , long-duration utility-scale technologies and highlighted an enthusiasm for localised solutions between the Distribution Network Operators and the market participants . The government states that flexibility innovation challenges will be launched in spring 2021 .
Simultaneously with the White Paper , the government published a Call for Evidence “ Enabling a High Renewable , Net Zero Electricity System ”. The aim of this is for the government ’ s large scale renewable support policies and allocations of future contract for difference ( CfD ) rounds to be informed in order to meet objectives including the growth in renewable deployment to meet net zero targets and to support and adapt innovative technologies .
This a further step following the consultation published in March 2020 in which the government considered changes to the CfD scheme to facilitate the co-location of storage with CfD projects – concluding in November that changes are not currently needed but noted that it wishes to seek further views on how renewables can be best integrated and to identify the barriers to co-location of storage with CfD generators .
We can also look forward to the implementation of revisions to the network charges as described above and the expansion of the grid ’ s frequency response services . Dynamic Containment is the first of three ancillary services with the other two , Dynamic Moderation and Dynamic Regulation , expected to be rolled out this year and to manage smaller pre-fault frequency deviations .
To put the regulatory progression into perspective , the government noted in its White Paper that it has implemented two-thirds of the policies set out in the Smart Systems and Flexibility Plan of 2017 to remove barriers to energy storage , and that it expects to deliver these fully by 2022 .
2020 heralded some notable regulatory developments in the UK battery storage market and several long expected commitments delivered by Ofgem . These developments are significant , particularly given the challenging circumstances of 2020 .
Further progress is still needed to reduce the barriers for battery storage in the UK and to promote the effective competition in the generation market to encourage development and investment . However , it is clear that this sits within the government ’ s agenda and we look forward to monitoring the development of further legal and regulatory adaptations to encourage the growth of the battery storage market in the UK and its contribution to meeting the government ’ s net zero targets . •
24 Project Finance International Global Energy Report April 2021